JPMorgan Chase (NYSE:JPM) is being sued by the New York State attorney general over fraudulent and deceptive mortgage securities practices by Bear Stearns, which the company acquired in 2008.
The AG claims that Bear Stearns misled investors about the true risk involved in residential mortgage-backed securities (RMBS) and failed to properly assess the underlying condition of the mortgages involved, the Associated Press noted.
Moreover, even after Bear Stearns became aware of the problems, it continued to promote the securities to investors.
During the real estate bust, large numbers of mortgage holders who had been given loans with low introductory interest rates saw those rates jump, leading to massive mortgage defaults. The securities backed by the mortgages then collapsed, leading to investor losses.
Bear Stearns issued over 100 subprime RMBS in 2006 and 2007, which resulted in $22.5 billion in losses for investors.
The claims against Bear Stearns, which collapsed during the financial crisis and was merged with JPMorgan Chase, resulted from a federal investigation — the RMBS Working Group — of mortgage securities involved in the housing collapse.
JPMorgan Chase said it planned to fight the charges in court, noting that the lawsuit pertains entirely to Bear Stearns. It also said it would continue to cooperate with regulators.
Shares of JPMorgan Chase slipped fractionally in Tuesday morning trading.